A crackdown on payday loans is saving people £150 million a year — overdraft fees could be next

A sign in the window of a payday loans store in Dalston on October 3, 2013 in London, England. Payday loan stores are to face tougher regulations after moves proposed by the Financial Conduct Authority (FCA) call on more responsible lending. (Photo by )

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LONDON — Britain's financial regulator says a crackdown on payday lending is saving vulnerable consumers £150 million a year in fees.

The FCA took over regulation of the industry in 2014 and cracked down on the sector. Firms in the industry have been ordered to repay more than £300 million in unaffordable lending and fines since then and 1,400 lenders have gone out of business since then.

The FCA said Monday it has found that the cap, which limits daily interest to 0.8%, means firms are much less likely to lend to customers who can't afford to repay. Debt charities are also seeing fewer clients with debt problems linked to high-cost short-term credit.

As a result, the FCA is leaving the price cap in place and will review the policy again in 2020.

'Fundamental changes' needed for overdrafts

While the FCA is happy with its actions in the short-term, high-price lending market, the regulator says it now has concerns about other areas of lending — chiefly with unplanned overdrafts.

Labour MP Rachel Reeves leads a tribute to the murdered Labour MP Jo Cox on the first day of the Labour Party Conference in the Exhibition Centre Liverpool on September 25, 2016 in Liverpool, England. Party leader Jeremy Corbyn will hope to re-unite the party after being re-elected leader yesterday. (Photo by )

The FCA says unplanned overdrafts are too complex, meaning those who are forced to access them are unaware of the true cost. The reglator says costs are also too high. "Fundamental changes in the way that unarranged overdrafts are provided may be necessary," the FCA warns.

FCA CEO Andrew Bailey said in a statement: "The nature and extent of the problems that we have found with unarranged overdrafts mean that maintaining the status quo is not an option. We are now working to resolve these issues while preserving the parts of the market that consumers find useful."

'High-cost credit products remain a key focus'

The watchdog is also concerned about: the "rent-to-own" market, where consumers pay rent on a big-ticket item such as a washing machine or TV while they are paying off the full price; door-to-door lending; and catalogue credit sectors, where catalogue retailers extend credit to people buying their products.

Bailey said in Monday's statement: "High-cost credit products remain a key focus for us because of the risks they pose to potentially vulnerable customers. We are pleased to see clear evidence of improvement in the payday lending market after a period when firms’ treatment of customers and their business models were often unacceptable.

“However, there is more that we can do, and this review is about identifying the areas where consumers may be suffering harm so that we can focus our efforts accordingly."

The FCA is also looking at the motor finance market, which has grown rapidly in recent years, to assess whether consumers are at risk.

The FCA said: "We consider that direct consumer risk exposure may be more limited, but may be heightened where there has been an inadequate assessment of affordability and/or a lack of clarity for the consumer in their understanding of the contract."